Landmark judgement against Federal Tax Authority's penalty order won by Dubai Refreshments

Since the introduction of VAT in UAE, there have been some challenges relating to the interpretation and application of the applicable VAT laws and penalties. Recently a landmark decision was made  in Dubai which upheld an appeal against fines and penalties in the region. The  Federal Tax Authority of UAE will have to re-compensate the F&B company Dubai Refreshments on administrative penalties imposed on it. The lawyer for Dubai Refreshments, Baker McKenzie Habin Al Mulla in a statement, said that this is considered to be the “first time the federal Supreme Court issued a judgement in favour of a tax payer,”

The UAE Federal Supreme Court passed a judgement which dismissed an appeal filed by FTA. said, The Supreme Court stated the FTA “wrongly imposed administrative penalties, because the FTA imposed them on the incorrect premise that the company had collected funds as tax, and had not reported or voluntarily declared such tax”.

Both the Court of First Instance and Court of Appeal earlier rejected the FTA's appeal against the previous decision of the Tax Dispute Resolution Committee, and allowed the company's counter appeal against the decision of the TDRC.The law firm said in a statement that “These judgments confirm the robustness of the UAE judiciary with respect to the adjudication of tax matters, upholding taxpayers' lawful rights to challenge the FTA’s assessment on taxes and penalties,” “When challenging the FTA’s assessment, taxpayers should adhere to the specific procedures and timeline for re-calculations, reconsiderations and objections before the TDRC and the relevant UAE courts.”

Key Takeaway Points

This is considered as a landmark decision, because:

1. This decision has clarified the approach towards fines relating to voluntary disclosures, which was previously unclear and not necessarily being applied to companies in accordance with the intention of the law;
2. There are only a few successful appeals (i) made against a decision by the TDRC and (ii) referred to Court appointed experts in the field of tax;